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Minimum Denomination of a Share

 

Most UK companies are formed with a share denomination of £1 per share. This amount is known as the nominal value.

The lowest denomination allowed however is one hundredth of a penny, which is £0.0001. The reasons for such a small amount being required might be to split the value of a share where its market value has a high value which makes it unattractive and prohibitive to smaller potential investors.

For example, where a share has a market value of £40 (as was the case particularly during the internet share boom where the worth of several companies increased by vast amounts very quickly), some retail investors may find this amount to high for their portfolios.

In splitting the nominal value from say the original £0.01 per share to say £0.0001, in theory the market value should change from £40 to £0.40 (forty pence). Although the value of the company which Investors can now purchase will remain unchanged, the perception that they own more shares may make the equity far more attractive to them.

For example, an investor with £400 to spend would be able to purchase 1000 shares at £0.40 compared with 10 units if the price remained at £40 per unit.

Companies House currently has plans to reduce the minimum denomination further to five decimal places of a penny, that is, £0.0000001. In the above example £400 would result in the purchase of 1,000,000 shares.

 
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